Caution reigns on Wall Street and in C-suite, but not for the little guy

By Shawn Langlois

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Unless you’re a Seminoles fan or a Midwest Emperor penguin, this isn’t how 2014 was supposed to start.

But after 2013′s huge rally, a more measured approach to the new year is in order. That became apparent in a hurry. Three red days in a row will do that to an investor’s psyche. Corporate America certainly isn’t expecting more of the same in 2014. Neither is Wall Street. In fact, the suits are turning decidedly less bullish, according Brian Gilmartin of the Fundamentalis blog.

He pointed out that the average of 20 analyst forecasts for the S&P in 2014 is a gain of 5.8%, which marks the weakest annual target since 2005. Gilmartin’s own forecast is for the rather wide range of 5% to 15%, but he crunched some earnings-growth numbers that he believes could easily push that performance up to 20%.

“The economy and earnings are fine, but worries over the Fed and rising rates will suppress returns, in my opinion, a la 1994,” he wrote. “However, like a lot of strategists, we could wind up with a too-conservative forecast.”

One guy whose forecasts probably would avoid the “too conservative” label is James Kunstler. More on him and his wild outlook below.

While the “pros” are sobering up, the little guys haven’t jumped into stocks to this degree since 2007. The most recent AAII Asset Allocation Survey showed investors pushed equities to 68% of their portfolio last month, while bond holdings fell to 15% and cash dipped to 16.5%. The historical average for stocks is 60%.

The economy: Analysts are looking for a modest decline in the U.S. trade deficit in November, forecasting the gap to narrow to $40 billion from $40.6 billion in October. The report will be released at 8:30 a.m. Eastern. Also, two senior Fed officials who’ve been strong QE supporters will make appearances. John Williams, president of the San Francisco Fed, is one of those on the sked. Read: Spotlight on the economy.

The chart of the day:Erik Swarts of the outstanding Market Anthropology blog says he’s not a big fan of the S&P at these levels and expects China to outperform the U.S. market over an intermediate time-frame. To help bolster his stance, he used this chart, which lines up the current run with one that began in 1974.

The call of the day:There’s bearish, there’s uber-bearish, and then there’s James Kunstler – and he’s got some whopper forecasts. He said, of his ilk, that “it’s like being buried alive in Jell-O. It’s embarrassing to appear so out-of-tune with the consensus, but we persevere like good soldiers in a just war.” Kunstler writes of our return to medieval days and how “life in the USA is like living in a broken-down, cob-jobbed, vermin-infested house that needs to be gutted, disinfected and rebuilt.”

For our purposes, how does Kunstler see this global mess playing out in the stock market? “There may be one final reach upward in the first quarter. Then the equities crater, if not sooner,” he wrote. “I still think the Dow and S&P could oversell by 90% of their value if the falsehoods of the post-2008 interventions stopped working their hoodoo on the collective wishful consciousness.”

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Need to Know (NTK) guides investors to the most important, insightful items required to chart a course ahead of each trading day. Anchored by lead writer Shawn Langlois, NTK will sift through the fire hose of news, commentary and data, from traditional and non-traditional sources, and extract what’s most essential. You can start reading NTK here as it begins publishing at approximately 6:30 a.m. ET, or sign up here to get a version in your email box every morning at approximately 8:45. a.m. ET.